If you have ever held a British banknote and read the words carefully, you would find a curious statement on it. Nothing grand and something easy to digest at face value. This tiny little statement tells you more about the history of subjects and kings than you would think. I will try to explain how it is an illusion created to captivate every aspect of the modern world and how in contrast if we lose it we stand to lose freedom as we know it.
This little statement as innocent as it sounds is: “I promise to pay the bearer the sum of.” Most people would just read that as meaning exactly what it says, I will give you the money, with an expectation of receiving something in return. But why does it have the word “promise”? And this is where the story begins.
The First Bank
For hundreds of years the concept of money to exchange for goods was easy if you wanted to trade generally with another culture, especially one overseas, you needed gold. If you were a wealthy merchant in the 1700’s the best place to store your gold was in the vaults of the tower of London. There are many stories about the tower on the banks of the Thames where it runs through central London, and one of the lesser known facts is that it acted like the first bank. You could entrust your gold directly to the crown, to be kept under lock and key with a royal guard to protect it, in one of the safest buildings in London.
The Theft
But in 1640, after generations of safekeeping and trust, King Charles I seized the gold. “Seized” is an interesting word in itself, as it is sort of legalized stealing. In return, whether they liked it or not, the merchants received Royal Promissory notes promising to repay. It’s understandable that people didn’t take kindly to the guys that had stolen their gold wanting them to trust they would give it back. This was pretty much the end of that section of the tower’s history, and people urgently needed to find a new place to store their gold.
The Goldsmith
Believe it or not the only people honest enough to pick up the new gold surplus were the goldsmiths. They had a clean and reliable system. You would give them your gold, there was a small charge, and then you received a receipt. The receipt would say where your gold was located and how much you had deposited, and you could reclaim your gold at any time. Then a small change was introduced that changed the game completely. Instead of the receipt being specifically for you, with your name and details, the wording changed to “payable to bearer”. Which meant anybody that held the receipt could get the gold! The receipt suddenly became a very important thing in its own right, not to be lost or misplaced.
The Paper Receipt
It didn’t take long before the people started to use the receipts for the things they were exchanging. Why go to London to see a goldsmith and swap the gold when you could just give over a receipt to cover the cost, and maybe a small amount of gold to make up any differences? Notes and coins, in a new sense, had been born, small denominations of gold to settle the notes surplus or shortfall and a piece of paper with a merchant stamp for the gold amount.
The Second Theft
After a while the goldsmiths noticed something, maybe it was planned to reduce their counter work load or simply a by-product. But fewer and fewer people were asking for the gold back, the deposits still came in their different amounts, but the receipt was more important than the gold deposited. This is when an interesting term was born: “fractional banking”. Again, another simple phrase to pass by. But what actually happened was the goldsmiths, who were soon to be called bankers, realised that they could issue receipts as loans for gold they didn’t have. The receipt would act as gold in the real world and nobody was going to ask to check on the physical gold any time soon. This meant the bankers could make new gold, and this was the birth of the world we now live in today.
The Collapse of the Old System
Up until this point, you gave your gold to an official channel all across the known world, and people used tally sticks as a way of accounting for their gold. Effectively they were the first notes. They were transferable as the amount was printed on the stick, and as no two sticks are the same, if you split this stick in two only those two halves would match perfectly back together. After the wood was split, one half would be called a foil, which was kept by the crown or official, and the other half was called the stock, which went to the person making the deposit. When the Bank of England was established shortly afterward in 1694 it was called a joint stock institution and was allowed to establish with nearly 80% of its reserve through stock (that little piece of wood) deposits. This was backed by the crown in the official banking act of 1697. Now in return for your gold you would receive a new official Bank of England receipt, this transfer from stock to paper promissory notes would eventually burn down Parliament but that’s for another story.
The Illusion
And this is where the illusion starts to gather ground, now that the people no longer care about actual gold. It was heavy and harder to exchange than the new paper promissory notes. Another interesting thing happened that nobody really noticed, and it still happens to this day. If you take your paper money to the bank and deposit it you expect they store it safely somewhere ready for your return, but that’s not what is happening. You are not legally giving your money to the bank, you’re lending it. It now owes you a debt and not anything else. It’s a corporation that now adds your gift to its books as a debt it owes you, or as it’s officially known, a liability. Unfortunately, as was proved by the gold merchants, nobody was going to call in the debt and ask for the gold back, and if everybody did ask for their gold back, they would quickly find out that the banks do not have it there in any physical form, they could now start lending people debt they didn’t actually have, and now rather than the bank being in debt to you, you are now in debt to the bank. This is normally through a measure of your life or a MORT (death) GAGE (no translation needed), another interesting term for a loan of something that doesn’t physically exist.
The Final Loss
And this is where it gets a little more concerning. The modern world seems to have a desire to get rid of the paper receipt altogether, and this has a serious implication. As much as the previous illusion meant the gold was stolen from the people, life could continue with the same privacy and autonomy as before. People gave the same importance to the receipt as the gold. But if paper money receipts or promissory notes are removed, even the promise to pay disappears, and you are left only with the digital currency. Which means you will always have to ask the goldsmiths for permission to make the transaction with your own money. And this is where far more than gold can be lost. The freedom to transact without authorisation or authentication is as important as free speech itself. And if the next illusion takes full effect, we would have lost a lot more than a shiny yellow metal.
